Optimal Online Service Strategy and Price Decision in Omnichannel Retail

Abstract

As a new emerging sales promotion tool, various types of online services are increasingly adopted by firms to improve consumers’ satisfaction and then increase profit. This paper simulates a two-echelon supply chain where a supplier sells the product through an offline or online retailer. Online channel is characterised by direct selling and reselling. We consider three online service strategies: no online service and preemptive and reactive online service. Several results are obtained. We find that investing in online services can benefit all players in most scenarios more than no-service scenario. In the direct selling case, the offline retailer benefits the most from the reactive service strategy due to the webrooming effect, whereas the supplier performance is best in the preemptive service strategy. However, in the reselling case, we find that the supplier and the online and offline retailers benefit the most from reactive service strategy. Furthermore, we compare the prices and service levels of the three strategies and find that the webrooming effect coefficient can affect the optimal wholesale price, retail prices, and online service level. Finally, the findings indicate that the supplier’s choice of the two cases depends on the fixed cost of the online channel.